Spate of copper thefts highlight the need for interruption insurance among SA businesses

The growing scourge of copper theft has had a severe impact on the Gautrain and other business and municipal operations resulting in damages amounting to over R15.84 million in July alone compared to R14.37 million in June.

According Jonathan Holden, Executive of Operations at Lion of Africa Insurance, these results which have been released by the SA Chamber of Commerce and Industry (Sacci) barometer, highlight the importance of having sufficient business interruption cover in place.

“Financial damages caused by copper theft are increasingly taking local businesses by surprise, especially those that are not covered for major disruptions that threaten the critical infrastructure of municipalities and businesses throughout the country, as thieves target electrical substations, cellular towers, telephone land lines, railroads, water wells, street lights and construction sites,” says Holden.

According to the Sacci damages caused by copper theft amounted to over R300 million in 2010. Holden says that this goes to show that it is critical that local businesses consider insurance contingencies that are designed to put a business in the same financial position it would have been in if no loss had occurred.

He explains that Business Interruption covers businesses for a wide range of operational costs and services that they are highly dependent on. These typically include, among others, profits that would have been earned, fixed costs like telephone, electricity and other expenses regularly incurred by the business, salaries and wages, temporary relocation and extra operational expenses for business continuity.

Holden says that major service delivery failures from municipalities and utilities caused by copper theft can be covered under a BI policy, but planned interruptions and scheduled maintenance are excluded. It is thus vital that businesses have robust business continuity plans in place and have assessed various options for supplier continuity as well as buffer stocks for unforeseen business outages. Cover for product defects and recalls can be obtained through a products liability policy.

“It must be noted that Business Interruption insurance cannot be purchased as a stand-alone policy, but can be added to the property insurance policy or comprehensive package policy. Since business interruption is included as part of the primary policy, it only pays out if the cause of the loss is covered by the parameters agreed in the overarching policy.”

Holden advises that businesses should consider supplier extension cover as an add-on to a Business Interruption policy, which will insure the business against any financial loss for breakdowns in the supply or delivery chain.

“It is vital that insurers and brokers understand their clients’ businesses fully and assess the impact of such dependencies on suppliers and other third parties, to ensure the adequate level of cover is in place and has been rated accordingly.” Risk mitigation techniques are as important as risk transfer through insurance.